How We Determine Your Funding Amount
The amount of financing a business qualifies for is determined by multiple factors including, but not limited to, business cash flow, time in business, and credit history. The detailed assessment of this criteria and how we use it to determine a factor rate, and ultimately the total payment amount, happens during our underwriting process.
Underwriting Process
Once an application is submitted, we conduct a full, upfront underwrite. Our underwriting process involves both our advanced technology and experienced, well-trained professionals. This helps us closely assess the financial health of each business and the amount of risk associated with providing funding.
Underwriting is typically based on criteria such as the business’s revenue, growth potential, and other factors including industry, time in business, and seasonality. Through our underwriting process, we determine a factor rate, or the cost of funding, for each application.
Factor Rate
Revenue-based financing providers typically use a factor rate, not an interest rate. A factor rate is a multiplier, expressed as a decimal, that is applied to the funding amount to determine the total payment amount.
The more risk a provider assumes, the higher the factor rate. With revenue-based financing, the customer knows exactly what their cost of financing will be before funding, regardless of how long it takes to remit the total payment amount. With a traditional bank loan, the longer it takes to pay off, the more interest a customer will pay.
Why It Can Seem More Expensive
Revenue-based financing is not a low-cost way to obtain working capital. That’s because the features included in this product to support small businesses are costly for Capital Funds to provide. Our approach is always to charge our customers a fair amount while being mindful of the cost to serve on our side.
There are several unique features built into the design of this financing product. These features also drive the cost of the product.
Attainable Eligibility Criteria
We believe every business deserves financial opportunity, and our product is designed to support that idea. Our eligibility criteria are more attainable and realistic for businesses at various stages, so we’re often able to say “yes” when other financial institutions say “no.”
Helping this underserved group of small businesses is important to us, but it does introduce risk, which we need to account for in our pricing.
Flexible Product
If a business’s revenue decreases, their payments can too, without interest ever accruing. We also offer customers reconciliations, resulting in refunds, when they pay their contracted amount while their revenue is declining.
If there is no business revenue, there will be no requirement to pay or personal liability, as long as the customer abides by the contract. This means Capital Funds assumes a higher level of risk than traditional financial institutions, and the cost of our product reflects that.
Speed of Funding
Our simple application is typically followed by a decision within hours, and funds are often transferred the same day. Businesses can receive funding in days, not weeks or months. Speed like this is uncommon with traditional financing providers.
Opportunity to Build Business Credit
Customers have told us that building business credit—and purchasing power—is important to them. That’s why we report customer performance to Experian Business Credit, which calculates business credit scores.
For small businesses with a strong payment history, this is a unique opportunity to access revenue-based financing while building business credit.